position paper 9 › › resource › ... · 2020-02-26 · q6: variety q7: evaluation has the...

10 QUESTIONS A REMUNERATION COMMITTEE SHOULD BE ASKING POSITION PAPER 9

Guidance for

Remuneration Committees

SPONSORED BY ENDORSED BY

2

© Institute of Directors in South Africa 2020

Guidance for Remuneration Committees – 10 Questions a remuneration committee should be asking

The Remuneration Committee Forum (the “Forum”) is constituted as a forum of the Institute of Directors in

South Africa (“IoDSA”), and is sponsored by EY. The activities of the Forum have specific focus on the

governance, accountability, role and duties of remuneration committee members.

The objective of the Forum is to serve as a platform for dissemination of guidance to remuneration

committee members. Such guidance will typically cover the following:

matters that relate to the function, duties and composition of remuneration committees; and

matters concerning remuneration committees in the public domain.

The dissemination of such guidance will typically take the form of position papers and roundtable

discussions. The current members of the Forum are:

Dr R Nienaber Independent (Chair)

Mr T Anderson Independent

Mr C Blair 21st Century

Mr D Couldridge Investec

Ms J Dixon IoDSA (Secretariat)

Mr L Grubb South African Reward Association (SARA)

Mr R Harraway Independent

Mr M Hopkins Bowman Gilfillan

Ms M Jialal-Dasrath Independent

Mr A Johnston Independent

Mr P Koornhof Allan Gray

Ms E Kumalo Independent

Dr K Mohamed-Padayachee Independent

Ms P Natesan IoDSA

Mr B Olivier Vasdex (Lead author)

Mr M Pannell Korn Ferry

Mrs A Ramalho Independent

Mr C Schaefer EY

Ms S Tosh Standard Bank

Ms V Vandayar IoDSA

Mr M Westcott PE Corporate Services

Disclaimer

The information contained in this guidance note is of a general nature and is not intended to address the circumstances of any particular individual or organisation. Although every endeavour is made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. The view and opinions contained in this guidance note are merely guidelines for information purposes only, and as such no action should be taken without first obtaining appropriate professional advice. The IoDSA, EY nor SARA shall not be liable for any loss or damage whether direct, indirect, and consequential or otherwise which may be suffered, arising from any cause in connection with anything done or not done pursuant to the information presented herein. All copyright in this paper subsists with the IoDSA, and extracts of this paper may only be reproduced with acknowledgement to the Institute of Directors in South Africa.

3



Contents

BACKGROUND .............................................................................................................................. 4

FRAMEWORK ................................................................................................................................ 4

QUESTION 1: STRUCTURE .......................................................................................................... 5

QUESTION 2: ALIGNMENT ........................................................................................................... 8

QUESTION 3: RISK MANAGEMENT ............................................................................................. 9

QUESTION 4: FAIR AND RESPONSIBLE .................................................................................... 12

QUESTION 5: INNOVATION ........................................................................................................ 17

QUESTION 6: VARIETY ............................................................................................................... 20

QUESTION 7: EVALUATION ....................................................................................................... 23

QUESTION 8: DISCLOSURE ....................................................................................................... 24

QUESTION 9: APPROPRIATENESS ........................................................................................... 26

QUESTION 10: ACHIEVEMENT ................................................................................................... 27

4



Background The IoDSA Remuneration Committee Forum was established to assist remuneration committees in

discharging their fiduciary duties. Consistent with the King IV Report on Corporate Governance™ in

South Africa, the position papers are not prescriptive, but rather are intended to provide practical and

directional guidance.

The Forum has produced 8 position papers to date covering a wide variety of topics ranging from

foundational matters such as remuneration policy and remuneration committee member composition, to

more technical matters such as conflicts at the remuneration committee meeting, linking pay to

performance and value creation.

This paper provides a framework to help committee members ask pertinent questions to ensure that “all

reasonable bases have been covered”. These may sometimes be questions of personal self -reflection

and at other times questions that should be voiced within meetings.

Although the content of this paper can with ease be applied to all organisations (entities), regardless of

form, remuneration committee members of listed organisations will probably relate most to what is being

covered herein, compared to other types of companies.

Framework There are many questions which the Forum believes remuneration committee members should be asking

such that the remuneration system works effectively. The following ten (10) have been chosen as they

cover the full spectrum of policy and implementation issues which the remuneration committee needs to

preside over.

Principle 14 of the King IV™ covers remuneration governance. There are 14 recommended practices

covering remuneration policy, implementation and voting on remuneration. The ten (10) questions have

been positioned against these 14 recommended practices and are indicated in the following illustration:

Q6: Variety Has the remuneration committee actively sought inputs from a variety of sources before making final decisions?

Q7: Evaluation Has the remuneration committee been thorough in its interrogation of performance outcomes?

Q8: Disclosure Have we appropriately considered what is and what is not disclosed in terms of remuneration?

Q9: Appropriateness Are the remuneration outcomes appropriate and have we exercised

appropriate discretion where necessary?

Q5: Innovation Are we understanding the needs of all stakeholders and innovating with changes as circumstances demand?

Q10: Achievement Does the remuneration policy and implementation of the policy achieve the stated objectives?

Q4: Fairness and responsibility Are we regularly assessing the fairness of pay and how responsible are our policies and practices?

Q3: Risk management Do we have enough and the correct tools in order to mitigate risk in the remuneration system?

Q2: Alignment Do we have a clear understanding of the entity’s strategic objectives and value

drivers and how remuneration is aligned?

Q1: Structure Do we understand all components of the entire remuneration system in operation and how these components relate to all levels of staff?

5



Q1: Structure A remuneration committee member needs to formulate an understanding of all the elements of the

reward structure operated by the organisation and how these are applicable to all employees of the

organisation.

Do we understand all the reward structures in operation, how they operate and how they interact

with each other?

Although the primary responsibilities of a remuneration committee relate to directors, executives and

prescribed officers (Position Paper 1 –A framework for remuneration committees), there are many

other issues on which a remuneration committee will need to make judgement calls on (e.g. fairness,

responsibility, appropriateness) and making these judgment calls will require a high level

understanding of all the policies and plans in operation for all levels of employees that participate in

the reward structure. The three important “sub questions” which need to be asked in the context of

this structure are:

Which reward structures are in place?

How do these structures broadly operate, how were they determined and what is the range

of likely outcomes?

Are they appropriate?


Answering this question should provide a picture of the overall reward landscape as it applies to all

employees. This further serves as a cross-check to ensure that all the requisite building blocks of the

remuneration policy (Position Paper 2 - The remuneration policy) are in place and appropriate for

the organisation concerned. The question may be answered in a format such as illustrated below

which serves as an example of how the organisation can provide this information and should not be

seen as being prescriptive of what the content / policy decisions should be.

Executive

Directors (EDs)

and Prescribed

Officers (POs)

Executives

Management

Non-

management

Unionised /

collective

bargaining

Job sizing /

grading

Paterson F-Upper

and higher

Paterson F-Lower

and E-Upper band

Paterson E-Lower

and D-Upper

Paterson D-

Lower, C5 and

C4

PatersonC3

and below

Benchmarking Listed Company

peer group

Bespoke or

executive survey

National Survey National Survey Forum

Negotiated

Performance

Management

Balanced

Scorecard (BSC)

Balanced

Scorecard (BSC)

Balanced

Scorecard (BSC)

n/a n/a

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Position_Paper_1_A_framework_for_remuneration_committees.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Remuneration_Policy_December_2013_FINAL.pdf

6



Executive

Directors (EDs)

and Prescribed

Officers (POs)

Executives

Management

Non-

management

Unionised /

collective

bargaining

Guaranteed

Remuneration /

Basic salary +

benefits

Salary, retirement,

medical, risk and

vehicle benefit all

covered under total

cost to company

Salary, retirement,

medical, risk and

vehicle benefit all

covered under total

cost to company

Salary, retirement,

medical, risk and

vehicle benefit all

covered under total

cost to company

Basic salary +

retirement,

medical and risk

benefits

Basic salary +

negotiated

benefits

Short-term

incentive (STI) /

Bonus

Group & Individual

Scorecard

(weighted)

Group, Divisional &

Individual

Scorecard

(weighted)

Sales - % of gross

margin

Head Office –

discretionary up to

25%

Sales - % of

gross margin

Head Office –

discretionary up

to 15%

13th

Cheque

Long-term

incentives (LTI)

100% Performance

Vested Shares

100% Performance

Vested Shares

50% Performance

Vested Shares

50% Time Vested

Shares

n/a n/a

Recognition

schemes

n/a Informal Formal linked to

group-wide program

Points based

system which

accumulates a

monetary value

Points based

system which

accumulates a

monetary

value

There is no single prescriptive way to answering the question of what is in place but each organisation

should have a means to communicate this to remuneration committee members and external

stakeholders in an efficient manner.

How do these structures broadly operate, how were they determined and what is

the range of likely outcomes?

Each scheme should be accompanied by a short summary highlighting the mechanics, drivers,

weightings and targets applicable for each scheme. This is important so that the remuneration

committee can develop an understanding of which performance metrics are applicable to which

grouping of employees but also to check if there are any metrics missing from the portfolio of metrics

across all schemes. Consideration should be given to the benchmarks that informed these metrics

as well as the target, threshold and maximum awards. It is also important to understand if the same

metric occurs in multiple schemes and be able to verify if that is indeed by design and appropriate for

the organisation concerned. The following two concerns are important but often in conflict:

Alignment with strategic priorities; and

Line of sight for participants.

The change and communication plan associated with the implementation of reward schemes is also

an important consideration to ensure that these reward schemes truly drive the most appropriate

behaviour. Lastly, the remuneration committee should satisfy itself in understanding which levels of

controls are in place in setting targets, approving pay outs and approving the final amounts for

processing.

7



In order to understand the overall cost impact of all forms of guaranteed and variable remuneration

for recent history, current and near-term future projections should be regularly reviewed by the

remuneration committee; an example of such information disclosed is provided in the following table:

Executives Prior Year Previous Estimate of

Current Year

Current Estimate of

Current Year

Maximum potential for

Current Year

Guaranteed

Remuneration R 57.6m R 63.0m R 67.6m R 67.6m

Short-term incentives

(STI) R 31.7m R 31.5m R 39.2m R 55.0m

Long-term incentives

(LTI) R 23.0m R 26.5m R 26.5m R 26.5m

Number of Employees 48 50 52 52

The above table is illustrative of potential or actual cost impact of the reward structure for the

“executives” category, but this should be compiled for all categories of employees. The above table

indicates “value at award” but there are two further cos t considerations which the remuneration

committee needs to assess since they are different from the “value at award” approach described in

the table above:

IFRS2 cost of share-based arrangements; and

Single Figure disclosure in the remuneration report.


This is a broad principle question which the remuneration committee should regularly interrogate and

consider. The focus and value drivers of an organisation as well as the external factors of what is

considered good governance and what is considered appropriate in any given socio-political

environment, change over time. The remuneration committee should regularly evaluate not only what

is contained in the current policy but also what is not contained in the current policy compared t o

current practice, regulations or legislation. That which is not being behaviourally encouraged can

sometime be as important as what is being encouraged or incentivised.

The remuneration committee will in many instances not be required to approve schemes for more

junior levels of employees but it is the responsibility of the remuneration committee to know which

schemes are applicable, to which categories of employees they apply, the broad principles, drivers

and pay out ranges for the various schemes and obtain insurance that the schemes remain

appropriate as circumstances change. Agreements with collective bargaining bodies should also be

known especially when deadlocks can lead to industrial action which could be extremely damaging to

the organisation. With the recent global focus on pay gaps and a living wage, remuneration

committees should make a point of debating these matters at all levels of the organisation.

8



Q2: Alignment The literature on remuneration governance continues to be dominated by the need to ensure that the

drivers of an organisation’s variable pay arrangements are aligned with its strategic objectives.

Do we have a clear understanding of the organisation’s strategic objectives and value drivers , and

how remuneration is aligned?

This was the topic of an earlier position paper (Position Paper 4 – Linking pay with performance)

and this paper provides detailed background understanding of this question.

Many listed entities have publicly stated objectives, many of which take a typical form such as the

example illustrated below.

Benchmark / Target Current Year Performance

Medium term outlook

Financial

Earnings Earnings per share (EPS) growth

10% 12% 12% - 15%

Capital efficiency Return on Capital Employed (ROCE)

15% 13% 12% - 13%

Market

Market share Maintain local market share

35% 35% 34% - 36%

Diversification Increase non-RSA revenue

15% 8% 10% - 12%

SHE

Safety Lost time Injury Frequency Rate (LTIFR)

10% 9% 8% - 10%

Emissions Greenhouse Gas (GHG) emission reduction

10% 9% 10% - 12%

Data such as this should be complemented by reference to reports submitted to the board in business

plans, longer term planning cycles and other internal documents which plot the strategic objectives of

the company.

The two important “sub questions” which need to be asked in the context of alignment include: -

Are all the important strategic objectives captured in variable pay schemes?

Are the scheme targets aligned to strategic objectives?


Answering this sub question is partially achieved by assessing whether the drivers contained in the

various schemes all align to the organisation’s strategic objectives. This is also a relative answer

depending on context. Having a revenue growth target may be deemed misaligned with an executive

STI plan if the only financial objectives are to achieve moderate earnings growth and efficient capital

usage whereas in a junior employee’s sales commission scheme, this may wel l be deemed aligned

with the objectives for that category of employees.

As important as assessing whether the scheme drivers all align to the stated organisation objective is

assessing whether there are any missing components. Should a particular organisation be lagging

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_4_Linking_pay_with_performance.pdf

9



its B-BBEE requirements then it may well be appropriate to question why this neither features in the

organisation’s strategic objectives nor in the variable pay scheme targets.


There is an important distinction which needs to be made here regarding timelines. The organisation’s

strategic objectives are often long-term in nature and hence a single year target does not necessarily

exactly match the longer-term objective. Hence the interpretation of alignment may be different for

different schemes.

In short-term incentive plan (STIP) performance targets, one may very well find that the current year

target doesn’t exactly match the longer term target (e.g. in the above example an ST IP target of 10%

diversification). What is important in this context is alignment with a trajectory which reaches the

medium term target within a reasonable time frame.

In long-term incentive plan (LTIP) performance vesting targets, it is especially important to understand

the scheme targets in relation to the organisation stated targets as well as relative to the market. In

the example above, should the LTIP target be an earnings growth of 10% (i.e. aligned to organisation

strategic objective) then a projected outlook of outperformance of 12% - 15% may well be considered

acceptable where the market was 8%. Should the market however be 15%, then alternatively the

target may be considered “light” or “soft”. These targets should also align with the vesting period and

consider the nature of the organisation – for many entities it is very difficult if not impossible,

alternatively a gamble to set targets over a 5 year period; for others with long development cycles, a

5 year target and even longer, is very feasible and most appropriate.

Alignment refers not only to ensuring that variable pay arrangements have drivers which align with

strategic objectives but also that the targets are aligned with acceptable levels of performance.

Q3: Risk management It goes without saying that one cannot predict the future with any degree of precision nor can one

predict all likely potential scenario outcomes. Risk management in remuneration is not only about

assessing a variety of risk elements but also about having the correct tools in order to mitigate against

risk.

Do we have the correct set of tools in order to mitigate risk in the remuneration system?

In order for the remuneration committee to properly mitigate against risk elements, the following six

tools are essential ingredients in this context:

Malus provisions;

Clawback provisions;

Minimum shareholding requirements;

Post vesting holding periods;

Maximum / ceiling payouts; and

The remuneration committee’s discretion

10



Malus provisions

Malus refers to the total or partial forfeiting of any in-flight or unvested awards, e.g. pre-vesting. These

may be unvested LTIP awards or STIP awards relating to a current or future years’ performance .

These provisions would be invoked at the discretion of the remuneration committee to protect the

organisation against such issues such as material misstatement of results (intentional or not), fraud,

dishonesty, misconduct or negligence and can be enacted whether the employee(s) implicated

terminate employment or not. With appropriate policies in place, the remuneration committee, in

consultation with other board committees such as Safety, Social and Ethics or Audit, should have the

ability to propose to the board that some or all of these in in-flight awards are lapsed or adjusted

downwards prior to or at vesting thereof.

Clawback provisions

Clawback refers to the ability for the Board or the remuneration committee to require previously

vested, settled or paid amounts to be repaid to the organisation. Clawback may be required to be

implemented after an individual has terminated employment but may also be applied to executives

still in service. Due to the often very public nature of the reasons for implementing clawbacks, they

are not only necessary tools but are also, in certain jurisdictions, a legal requirement for inclusion in

executive remuneration policies. The remuneration committee needs to ensure that the appropriate

policy and practices are in place to allow for the effective execution of these provisions.

Minimum Shareholding Requirements (MSR)

In order to achieve alignment with shareholders’ interests (where shareholders are only one of the

many stakeholders of an organisation), it is often desirable to have executives with “skin in the game”

by building up and holding shares in the organisation in their personal portfolios. This is often achieved

through requiring them to hold a certain level of fully owned and unencumbered shares that are built

up over a period (typically five years from the date of their appointment), using either vested shares

or any other cash proceeds from incentive plans. Typically, executives are required to hold onto vested

shares, only allowing the sale of shares to cover the tax liability (if applicable), until the MSR is met.

Post vesting holding periods

Another way of achieving the same objective (and one which is becoming more prevalent especially

in the UK market) is to mandate a prescribed holding period post vesting when the executive may not

dispose of his / her vested shares until the prescribed period has elapsed.

Both of these approaches can however act as a double-edged sword. A very low investment in

company shares can lead to misalignment of objectives, so too can an over-exposure or concentration

risk in a single stock lead to misalignment and inappropriate risk-averse behaviour. The remuneration

committee needs to consider all these factors when implementing a policy appropriate for the

particular organisation.

Maximum / ceiling payouts

King IVTM recommended practice 34 indicates that, amongst other suggestions, the overview should

include:

An illustration of the potential consequences on the total remuneration for executive management, on

a single, total figure basis, of applying the remuneration policy under minimum, on -target and

maximum performance outcomes.

11



Having maximum or ceiling payout levels provides an additional safeguard so that the system has a

safety net which limits eventual payout quantum. The final point in this section will talk to the discretion

which can be applied by the remuneration committee which would include payouts above the pre-

defined limits where full and totally transparent stakeholder disclosure is required, explaining the

rationale for this discretion and the quantum awarded. Stakeholders are then able to express opinions

on such eventualities through the various non-binding votes (or whatever is applicable in the

jurisdiction).


Many variable remuneration schemes adopt a somewhat mechanical and formulaic approach to the

determination of STI and LTI awards and their vesting.

Whilst this approach can be said to be SMART

and hence a preferable method which aligns with

the requirements of effective goal setting, it does

have certain deficiencies, namely:

Not all goals can be known in advance,

especially for senior executives where they

are required to react to rapidly changing

market or macro-economic environments;

Having an a-priori knowledge of what an

acceptable target is, is a complicated matter

which often only becomes evident after the

measurement period is completed; and

They often encourage an over-emphasis on

the “mathematics” of computation and thus

avoid a discussion of performance and

specifically performance directly contributing

to the achievement, or not, of strategic

objectives.

It is therefore preferable that any mathematics, mechanical or formulaic approach should serve only

as a guide and a tool, and the remuneration committee should retain total and unfettered discretion

in the award of pools and/or amounts to executives or participants. The UK Corporate Governance

Code (July 2018) states the following as one of three principles for remuneration :

“Directors should exercise independent judgement and discretion when authorising

remuneration outcomes, taking into account company and individual performance, and wider

circumstances.”

It goes without saying that any discretionary adjustments (up or down) need full justification and

documentation and disclosure where appropriate. Discretionary adjustments would typically take

place to prevent unintended windfall gains or losses, to correct for design flaws or to correct for

performance in respect of areas that are not necessarily are catered for in a performance scorecard.

12



Q4: Fair and responsible King IV introduced the concept of “fair and responsible” remuneration and recommended practice 34

requires that the disclosed overview of the remuneration policy includes “an explanation of how the

policy addresses fair and responsible remuneration for executive management in the context

of overall employee remuneration”.

Are we regularly assessing the fairness of pay, how responsible are our policies and practices and

how do our pay practices impact on the dignity of our employees?

This topic was covered by the Forum in a previous position paper (Position Paper 6 - Fair and

responsible remuneration). Since it is a relatively new concept for remuneration committees there

is no clear guidance on how this should be approached and many different approaches will become

evident through the required disclosure over the next few years. There are however some techniques

which can be used to aid deliberations on this matter, namely:

Stakeholder alignment;

Benchmarking;

Pay ratios;

Pay gaps;

Gini coefficient; and

Living wage.

The most important aspect when considering such a new topic is to assess a broad range of

techniques and to evaluate the trajectory of adopted practices over the past few years and into the

coming planning cycle. This is especially true in situations where there is little to no standards

available.

Stakeholder alignment

One of the recurring themes echoed by institutional investors when explaining negative voting trends

on the two non-binding remuneration votes is that “executives have seen increased reward whilst

shareholders have seen decreased return on investment or value destruction”. South Africa has a

very large income differential curve and if the rates of change of remuneration between categories of

employees is skewed to the upper management levels or executives then it is nigh impossible to make

any meaningful change to this metric.

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/IoDSA_Position_Paper_6-.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/IoDSA_Position_Paper_6-.pdf

13



The remuneration committee should thus consider the trend line and directional change of a number

of metrics indicating value or benefit to various stakeholders as is indicated in the following graph:

When applying judgement and discretion in finalising executive remuneration dec isions, the resultant

effect on executive remuneration in comparison to the value change experienced by other

stakeholders should be carefully considered. It is vital for the integrity of a reward system that

executive reward remains in balance with the relative reward experienced by other stakeholders.

Benchmarking

Benchmarking provides useful reference points with regard to external practices and can be used to

assess the organisation’s competitiveness against a select peer or sector group (provided this group

is an appropriate comparator).

The above graph shows the dispersion of salary compa-ratios (which is the internal salary divided by

the market reference or median point, depending on the remuneration policy in this regard), indicating

that by and large, the internal salaries are higher than the external market benchmark. This should be

taken into consideration when the total pay mix is reviewed.

It is important for a remuneration committee to remember that benchmarking is merely one of many

tools an organisation can use and they should see these as useful inputs but not slavishly follow the

benchmarks. Benchmarks have to inform deliberations where the context, affordability, organisation

maturity and footprint, among others, are to be considered.

A holistic overview of all reward components have to be considered, i.e. basic salary, benefits and

variable pay must be compared to the benchmarks to ensure that a balanced view is obtained. Survey

Co

mp

a-ra

tio

%ag

e D

evia

tio

n

14



results can change materially as participants change (either as participants leave or new participants

enter) or as individual employees are repositioned. Changes in assumptions and interpretations of

the valuation of elements of remuneration will also affect benchmarking values.

Pay ratios

Pay ratios have been on the radar screen for many years with some jurisdictions starting to require

disclosure thereof, in some or other form. The US, for example, requires mandatory pay ratio

disclosure of the ratio of CEO to median worker pay. The inten tion of this disclosure is to aid the “say

on pay” debate and voting on the remuneration policy (Source: https//howmuch.net/articles/top-20-

companies-with-largest-pay-ratio):-

Such ratios are often volatile as equity appreciation or depreciation will contribute significantly to the

disclosure in any one year. The results are also not an indication of wealth nor of fair pay practices.

Berkshire Hathaway and Tesla are two examples of companies with a pay ratio of 2:1 and 1:1

respectively which is no indication of the wealth of the respective CEOs. In addition, the business

model and pay mix all contribute to what the pay ratio would be. This makes comparisons across

market sectors of almost zero value and of limited value even if companies are in the same sector

(due to the mix of underlying businesses).

The CEO to median pay of the rest of the workforce ratio, can however also be extended to additional

evaluations such as 90th to 10th or 75th to 25th percentile evaluations. It remains to be seen whether

pay ratio disclosure provides meaningful insight in order to inform and potentially correct disparities

as it is so dependent on the sector, business model and location of the company. Furthermore, th e

volatility of LTIP awards often causes big movements in these pay ratios which can result in these

ratios being fairly limited in value and the question should be asked whether the pay gap analysis

should not be done excluding this information. Also, Remuneration committees could as an

alternative, consider a trend line over time rather than a comparative analysis with other companies

– in the end, the pay gap should close over a period of time.

Pay gaps

The UK has legislated the publication and submission of an analysis on the gender pay gap per

organisation. The annual disclosure is a set of percentages to be disclosed for each employment

organisation, limited to employees based in the UK. This means that salaries of employees who work

https://howmuch.net/articles/top-20-companies-with-largest-pay-ratio


15



for the same employment organisation outside of the UK, are excluded. There is no additional

reference to length of service, years of experience, competence or performance which makes the pay

gap ratio a fairly isolated data point. These singular results therefore provide little clarity into any

reasons for gender pay gaps, hence a deeper unpacking of results is required in order to make

meaningful conclusions. Unpacking the results to understand underlying forces (e.g. historical

gender-based discrimination) is required as indicated below (Source:

https://www.bbc.com/news/business-45977390):-)

From a South African perspective, the same Gender Pay Gap analysis can be undertaken as well as

a “Race Pay Gap” using the same principles. However, as with the UK disclosure, a deeper analysis

is required to make meaningful interpretations. Such deeper segmentation is exactly what will be

required by organisations when providing reasons and explanations in completing the proposed EEA4

income differentials statement to the Department of Labour (Source:

http://www.labourtesting.labour.gov.za/DOL/documents/forms/employment-equity/form-eea4-

income-differential-statement).

SECTION E: AVERAGE AND MEDIAN REMUNERATION AND THE REMUNERATION GAP

The following table is an extract from the latest requirement of the Department of Labour when the annual EEA4 form is submitted. Please note the average/ mean remuneration involves adding up a number of amounts in remuneration and dividing the total by the total number of employees included in the total. The ‘median’" is the "middle" value in a list of payments (i.e. remuneration) ranked from lowest to highest.

What is the average annual remuneration of the top

10% of your top earners?

Average Annual

Remuneration R

What is the average annual remuneration for the

bottom 10% of your bottom earners?

Average Annual

Remuneration R

What is the median earners remuneration in your

organisation?

Median Earners

Remuneration R

Please indicate whether your organisation has a

policy in place to address and close the vertical gap

between the highest and lowest paid employees in

your workforce? (Mark with X)

YES

NO

6 of 7 EEA4

3 of 4 EEA4

How equality ends at 40 The pay gap by age % pay difference

https://www.bbc.com/news/business-45977390):-

http://www.labourtesting.labour.gov.za/DOL/documents/forms/employment-equity/form-eea4-income-differential-statement


16



How many times (e.g. 10x, 15x, 20x) is the vertical

gap between the highest and lowest paid worker in

your organisation in terms of the policy?

___________________

Is the remuneration-gap between the highest and

lowest paid employees in your organisation aligned

to your policy? (Mark with X)

YES

NO

Are AA measures to address the remuneration gap

included in your EE Plan? (Mark with X)

YES

NO

Please indicate a key reason for the Income

Differentials that apply to your organisation. (Mark

with X)

a) Seniority/ length of service

b) Qualifications

c) Performance

d) Demotion

e) Experiential training

f) Shortage of skill

g) Transfer of business

Gini coefficient

The Gini coefficient is a statistical measure of the level of income disparity. It was originally

determined to measure the relative disparity in the relative wealth of nations but has recently been

increasingly used to determine the relative disparity of remuneration within entities.

It can be effective as a single figure number which

provides a simple result, but: -

There is little to no data in order to know what is a

good and what is a bad result;

It provides little insight into the causes of a

particular result and how it can be altered; and

It says little about the actual level of earnings (i.e.

living wage) as all employees earning R100 and

all employees earning R1m both have a perfect

0% Gini-coefficient.

Living wage

A living wage is the minimum income necessary for a worker to meet their basic needs. It is different

to a minimum wage set by the company or through collective bargaining structures. This living wage

will allow a worker to afford a basic but decent standard of living.

Needs include food, housing, clothing, transportation and education amongst many other essentials.

The dignity, feeling of “self-worth” and pride for an employee relates not only to making a meaningful

17



contribution in the workplace and being recognised for such contribution but also to being remunerated

at a level such that they can provide for the needs of their family and have a decent standard of living.

These socio-economic questions need to be raised by the remuneration committee and discussed

with other forums such as the Social and Ethics Committee such that the employees of an organisation

have dignity and a feeling of “self-worth” both through the work which they perform and the level of

remuneration they receive. These Board Committees should act as the ‘conscience of the company’

in this regard.

South Africa

There are very few entities within South Africa which, at this stage, publicly disclose any of these

metrics with the exceptions being limited Gini disclosure and gender pay differentials for certain

subsidiaries of UK parent organisations. It is however important for a remuneration committee to

ensure that management has oversight of these factors and actively monitors pay equity particularly

from a race and gender perspective.

Q5: Innovation Listed entities are required to seek a non-binding advisory vote on their remuneration policy and

implementation report from shareholders in general meeting. Should more than 25% of shareholders

vote against the policy then these listed entities are required to canvass the views of shareholders in

order to understand their concerns. Certain shareholders are representing stakeholders other than

institutional shareholders and hence there are often conflicting opinions on what is “right” and what is

“wrong” in terms of remuneration policy and implementation of the policy. The needs of stakeholders

are different, varied and often in conflict. The forum previously produced a paper regarding potential

conflicts which is also relevant in this context (Position Paper 3 – October 2014: Managing conflicts

and tensions at the Remuneration Committee).

Do we understand the needs of all stakeholders and innovate policy and practice changes as

circumstances demand?

A remuneration committee should continuously be assessing the need to update policies to remain

relevant in the context of a changing and dynamic environment and to seek innovative solutions which

aim to address and solve key and legitimate issues raised by a diverse, often contradictory, group of

stakeholders.

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/IoD_Remuneration_Committee_Paper_WEB.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/IoD_Remuneration_Committee_Paper_WEB.pdf

18



When measuring stakeholders and influence, one can categorise the following four groupings where

contradictions may arise and innovation is required to find acceptable solutions.

Executives

South Africa has recently seen a number of CEO departures (public and private sector) due to inter

alia a combination of poor leadership, poor health and safety record, corporate failures, stress and

burn-out. It is increasingly becoming a position for which a 5 - 10 year period has become the norm.

Less than this they are unable to change strategy and culture and see benefits; longer than this period,

the effects mentioned earlier become of real concern.

How a remuneration committee could innovate for the “Executives” grouping

CEOs are hired because they have a number of attributes which include, among others, their ability

to lead large workforces, their visionary ability to take an organisation in a new strategic direction

and industry experience. Coupling the aforementioned 5 - 10 tenure period with the often stated

“shareholder” grouping view that the traditional 3 - 5 year horizon is not long-term, there is potential

for innovation here.

An example of where the Remuneration committee can innovate in this area or lead the change as

opposed to only following, are:

Choosing to implement a fixed guaranteed package (GP) for the entire period of tenure

without any increase in the base salary or GP.

Choosing to implement a bespoke variable pay arrangement for the CEO with fixed amounts

available over a 3 - 10 year horizon against pre-defined strategic criteria (this can be renewed

again for the 8 - 12 year horizon which extends post the end of the contractual period).

Expecting executives to hold shares in the organisation for a period of time beyond the tenure

of their employment.

Staff Executives

Community Shareholders

Influence Strategic

Internal

Stakeholder

Operational

External

19



Employees

The vast majority of employees in most entities in South Africa will comprise Gen X (54 to 38 years

old) and Millennials (38 to 18 year old). This contrasts with Board Members and Executive Directors

who are predominantly from the Boomers generation (54 years and older). Many organisation policies

were set many years ago and hence were set by Boomers when they were in middle management

positions. The Boomer generation accepts authority because of its position or title and believes

everyone should adhere.

How a remuneration committee could innovate for the “Employee” groupings

Boomers work because their identity is inextricably tied to their job and title (it determines their self-

worth). Gen X work because it provides a means for them to enjoy what they enjoy doing (their

remuneration funds their lifestyle). Millennials are idealistic and wish to change the world for the

better.

Examples of where a remuneration committee can innovate in this area are:

Choosing to not have prescribed “leave days”. As long as you get your work completed there is

no requirement that you have to be at your official workplace at all times.

Making a decision to offer a living wage to employees at the lower end of the organisation even

though this may be significantly higher than the minimum wage.

Choosing to “shave off” an element of an annual STI pool in order to fund certain community

initiatives (this will achieve synergy with the “community” grouping).

Community

Community forums, organised labour and all other external stakeholders who either represent or

influence the general labour force are to be included in this grouping. This grouping is primarily

concerned with the welfare, stability and continuity of the community within which the organisation

operates and from whom it hires general workers.

How a remuneration committee could innovate for the “Community” grouping

Negotiations with organised labour are often protracted, acrimonious and heated. This can of ten

lead organisations to not examine other “non-financial” reward elements where such reward

elements are valued and beneficial to the community.

An example of where a remuneration committee can innovate in this area is:

Choosing to implement a reward system which can be exchanged for tuition, learning material

or school clothing for the children of their employees.

Setting up infrastructure where employees can, during working hours, tutor children in the

fenceline communities in mathematics, languages and science where we know there is a

significant shortage of trained educational personnel.

20



Shareholders

Shareholders have traditionally been the only “stakeholder” over which much of governance and

remuneration has been concerned. There has been a significant shift in the market with the advent

of the two non-binding advisory votes and the need to interact with shareholders when voting

outcomes are poor. This is a prime example of a remuneration committee needing to innovate its

operating procedures in interacting with shareholders.

How a remuneration committee could innovate for the “Shareholder” grouping

Executives, the grouping which historically controls the flow of information to shareholders, are

notoriously loath to disclose anything but the bare minimum, namely, that which is mandated by

law or otherwise only to the extent of what other companies disclose (not wanting to lead the pack

or be the first mover).

Examples of where a remuneration committee can innovate in this area are:

Choosing to have shareholders vote on all Long-Term Incentive plans that are not dilutory in

nature irrespective of the means of settlement. (e.g. cash settled plans or equity settled plans

where the shares are purchased in the market).

Choosing to retrospectively disclose exact performance ranges and values used to determine

STI awards for executives, including full disclosure of how and why values used in the STI

determination differs from those reported in the AFS, or to disclose performance metrics in

advance of the next financial year.

Q6: Variety A remuneration committee typically consists of non-executive board members who are eligible to vote

at remuneration committee meetings, attendees (without voting rights) may include executive directors

(CEO, CFO, HR Director), and management representatives who present specific m anagement

proposals including proposed (or actual) outcomes as well as external advisors (attending on behalf

of the remuneration committee or management) providing independent external advice.

The remuneration committee needs to ensure that its members, as a collective, have the relevant

skills, competence and experience in understanding the variety of input required to produce a holistic

view of remuneration from a variety of perspectives. The Forum previously produced a paper

regarding the competence profile of a remuneration committee (Position Paper 8 – Remuneration

Committee Competence Profile).

Has the remuneration committee actively sought inputs from a variety of sources before making

final decisions?

Whether a remuneration committee is presented with either “this is the calculation and hence the

result” or “these are the special circumstances that need to be considered or adjustments which need

to be made”, it requires judgment and decisions from the remuneration committee. The remuneration

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_8_Remuneration_Committee_Competence_Profile.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_8_Remuneration_Committee_Competence_Profile.pdf

21



committee is often then required to take its own independent advice on these matter before making a

final decision.

Parties typically providing input into the deliberations include:

Management;

Audit committee;

Risk committee;

Social & Ethics committee;

Safety, health and environment committee;

Capital investment committee; and

External advisors.

Management

It stands to reason that a remuneration committee would take input from management as the latter

are required to prepare most presentations for remuneration committee. Management input should

however not be restricted to normal invitees such as the CEO, CFO and Human Resources Executive.

In many instances the Chief Internal Auditor needs to attest to their findings and the Chief Risk Officer

is also sometimes required to present findings on risk failures or risk issues which have been identified

and require resolution. The organisation governance expert or Chief Legal Advisor also needs to

ensure that the Remuneration Committee stays abreast with statutory and regulatory changes and

complies with all requirements.

Audit Committee

The Audit Committee will ensure that the financial statements of the organisation comply with the

latest reporting requirements as and when they become applicable.

Example of Audit Committee input into a remuneration committee decision

The introduction of a new accounting standard (e.g. IFRS 9 Financial Instruments or IFRS 15

Revenue from Contracts with Customers) will affect forward looking disclosures. The latest

requirements may also introduce more or less volatility in business results.

The remuneration committee will be required to opine on the impact of these legislative changes

(e.g. with respect to previously set earnings metrics for the future vesting of in -flight awards) and

make a judgment call on whether the change is significant and material enough to apply judgement

and amend an outcome which will now be different due to external factors impacting on the

measurement of performance against an agree metrics.

22



Risk Committee

In Financial Services, organisations, the Banks Act for example requires that the Risk Committee

provide input to the remuneration committee in order to make the necessary risk adjustments to

remuneration outcomes as assessed against relevant reports.

Example of Risk Committee input into a remuneration committee decision

An internal risk assessment may determine that a particular division has not implemented sufficient

protocols and processes in order to protect the Bank from an anti-money laundering perspective.

This may be exacerbated by a pending fine from the South African Reserve Bank.

The remuneration committee will be required to opine on what adjustments may be required to the

STI awards in the current year since there is no direct financial impact in the current year but there

could be an impact on other potential non-financial impacts which must be considered when the final

awards are determined.

Social and Ethics Committee

One of the important tasks of the Social and Ethics Committee is to monitor the income differentials

within the organisation. Any issues raised will be reported back to the Board and management will

be requested to investigate further and take corrective action where necessary.

Example of Social and Ethics Committee input into a remuneration committee decision

Should the Social & Ethics Committee determine that there is a systematic resistance from

management to take necessary corrective actions, then such findings need to be considered by the

remuneration committee during their remuneration deliberations.

The remuneration committee will be required to opine on whether the finding is firstly of sufficient

magnitude to warrant remuneration adjustment, secondly which employees should be affected by

such adjustments and thirdly whether the actions are of significant severity to consider them unethical

and hence consider malus and possible clawback triggers.

Safety, Health and Environment Committee

As the name suggests, the SHE Committee is tasked with oversight of a number of areas including

human rights, labour relations, environmental concerns and anti-corruption.

Example of SHE Committee input into a remuneration committee decision

A safety event can occur which causes significant reputational damage to the company in the short -

term and likely financial consequences into the future (legal, reparation and remedial cost

implications).

The remuneration committee will be required to opine on what remuneration adjustments are required

to be made (including malus and clawback) and on which individual employees such action should

be taken against. This may result in varying degrees of impact for different individual employees.

23



Capital Investment Committee

In large industrial corporations, projects above a certain size (measured in terms of capital employed,

complexity and duration) will be monitored regularly by a Capital Investment Committee. They will

consider the funding decisions, project planning and progress through a construction, acquisition or

divestment process.

Example of Capital Investment Committee input into a remuneration committee decision

Large capital projects (funded through significant debt or dilution / new capital issuance) are often

very long-term through the procurement, construction and commissioning phases. Delays in

completion and/or increased funding requirements may not have an immediate financial

consequence on near term financial outlook but could be detrimental to the company’s valuation and

long-term financial stability.

The remuneration committee will be required to opine on what adjustments may be required to

current and past (i.e. malus) remuneration awards, should cost increases and / or project delays be

of a significant and material consequence, such that it affects the long-term valuation and

sustainability of the organisation and or negatively impact the ROIC in a significant way.

External advisors

External advisors should not only comprise remuneration advisors but also include auditors, tax

specialists, legal experts and governance experts. All of these advisors can provide independent

input for the remuneration committee to contemplate before making final pay outcome decisions. It is

important for the remuneration committee to have access to independent advisors particularly when

complex or reputationally sensitive matters are considered.

Variety of inputs

What is required from the remuneration committee is to take input from all available and necessary

sources before making a final decision on the matter at hand. In terms of King IV, the remuneration

committee is entitled to call upon any external advisor to assist it in its deliberations. It is vital that,

should the remuneration committee choose to make discretionary amendments such as those

described under the various board committees above, such decisions, with their rationale and

motivations, should be fully disclosed in the remuneration report.

24



Q7: Evaluation Despite the often formulaic nature of many remuneration scheme designs, it is beholden on the

remuneration committee to interrogate proposed pay outcomes thoroughly after the performance

period has elapsed.

Has the remuneration committee been thorough in its interrogation of performance outcomes?

It is probably best to try and formulate a context for such an evaluation . The diagram below indicates

four different outcomes when examining the organisation results against both the internal

(organisation) and external (market) targets or benchmarks.

A healthy degree of professional scepticism is often required in order to interrogate deeper and

ultimately make decisions after such extensive evaluation.

Star

When the result for an organisation exceeds both its internal targets and market benchmarks (both

macro-economic and peer group) then it can truly be said to be a “Star” performer. The remuneration

committee should then be ensuring that reward is appropriately large without being excessive . The

danger in such situation is often to the downside of being miserly and not competing with the emotional

performance reward contract with employees.

Pluto Star

Black Hole

Mars

Exceed Internal (Entity) Underperform

Exceed

External (Market)

Underperform

25



Black Hole

When the result for an organisation underperforms both its internal targets and market benchmarks

(both macro-economic and peer group) then it is a desperate “Black Hole” situation. It is exactly in

situations such as these when stakeholders rightfully express their displeasure when the remuneration

committee awards cash based retention payments or time vested retention shares when these follow

under-performance from both an internal and external perspective. Retentions are then often the

substitute for low or no performance incentive awards. Particularly for executives, a remuneration

committee needs to “walk the talk” of aligning pay with actual performance in such “Black Hole”

situations.

Mars

The analogy of the “Red Planet” Mars is used to indicate danger. The organisation has outperformed

its own targets but has underperformed the market and underperformed in the eyes of external

stakeholders. Such a situation often arises when either:

the internally set STI and LTI targets are not stretching enough and are considered “soft”

targets; and/or

the internally chosen metrics can be gamed / manipulated easily to achieve desired results.

This is precisely the situation where a remuneration committee needs to carefully consider the

application of downside discretion such that the final outcome is seen to be fair, reasonable and

appropriate. It should also feed into the future target setting process for STI and LTI such that the

same situation is unlikely to be repeated.

Pluto

Pluto was for many years a planet and a planet of mystery at that. The outcome where the

organisation has underperformed its own internal targets but outperformed the market is a somewhat

mysterious outcome where the organisation has perhaps implemented targets which are too

aggressive and too stretching. In situations such as these the application of upside discretion may

be warranted depending on the evaluation of the remuneration committee. As with Mars, the outcome

needs to be seen to be fair, reasonable and appropriate.

Q8: Disclosure The South African Reward Association (SARA), with support from the IoDSA, published a detailed

guide on how to practically apply/implement King IV Principle 14: Remuneration Governance (A

Guide to the Application of King IV: Principle 14).

Have we appropriately considered what is and what is not disclosed in terms of remuneration?

http://www.sara.co.za/sara/King%20IV%20Guide%20to%20the%20Application%20of%20Remuneration%20Governance.pdf

http://www.sara.co.za/sara/King%20IV%20Guide%20to%20the%20Application%20of%20Remuneration%20Governance.pdf

26



The remuneration committee needs to interrogate not only what is disclosed but also what is not

disclosed. This can often be a point major disagreement between management and non -executives.

The analysis of what is and what is not disclosed can be understood within the King IV fr amework of

the remuneration report.

Background statement

Remuneration policy

Implementation report

Background statement

This section is often utilised in the form of an introductory letter from the Chairman of the remuneration

committee. Possibly, the four most important factors for consideration here are:

Have we fully covered all focus areas and key decisions made?

Have we honestly expressed our opinion on whether the policy is achieving its stated

objectives?

Have we stated our most recent voting outcomes, our response to these outcomes

particularly when not favourable and formulated a gap analysis indicating where our policy

and/or implementation requires amendment?

Have we addressed engagements with investors and the outcome of these engagements?

Remuneration Policy

Each remuneration committee member should be familiar with the contents of and be satisfied that all

material elements of the remuneration policy are adequately disclosed. Particular attention should be

paid to:

Have we fully disclosed all frameworks, metrics and weightings of both short and long

term variable pay schemes?

Have we adequately and fully disclosed both the policy for the year under review as well

as planned changes to the policy for the coming year?

Have all elements of remuneration been correctly captured in the disclosure of potential

remuneration outcomes (at minimum threshold target and maximum)?

Have we fully disclosed all obligations in terms of any termination payments?

Implementation Report

The implementation report can become quite technical and detailed. The remuneration committee

should pay particular attention to the following:

Have we adequately described group, division and individual performance results such

that external readers can make meaningful conclusions on pay for performance?

Have we adequately described the performance outcomes of share vesting such that

external readers can make meaningful conclusions on pay for performance?

Have we included all elements of remuneration as required by the s ingle figure

disclosure?

Have we adequately disclosed decisions where discretion had to be exercised or where

out-of-policy decisions were made?

27



Q9: Appropriateness The final stage of implementation involves final approval of incentive pools and individual awards

made available for distribution and actual payment. This is the stage where the remuneration

committee is required to reflect on the value created for all stakeholders and how it links with executive

pay. This topic was discussed in detail in a previous position paper (Position Paper 5 – Value

creation and executive pay).

Are the remuneration outcomes appropriate and have we exercised appropriate discretion

where necessary?

Whether the final results and outcomes are appropriate is often a question of whether it passes the

“red face test”.

Wiktionary1 describes failing the red face test as a situation that would cause the

person “discernible” embarrassment. To pass the “red face test” the remuneration

committee would need to positively affirm the following:

Do I have any unspoken reservations about the outcome?

Would I be happy to support the outcome in the court of public opinion?

Do I have no more unspoken reservations about the outcome?

It is necessary for each individual remuneration committee member to privately attest to themselves

that they have exercised their fiduciary duties in articulating concerns and further sought out

acceptable resolution to queries. This is to be satisfied that they have applied independent thought

and judgment.

Would I be happy to support the outcome in the court of public opinion?

The decisions and final outcomes approved by the remuneration committee need to have a justifiable

basis. Decisions cannot be on pure whim and fancy but final results (including any dis cretion where

applied) need to have a basis in fact and must be justifiable. Each remuneration committee member

should have comfort that full public disclosure of the decisions are made and reasons for the decisions

can be disclosed without causing embarrassment or reputational harm.

1 https://en.wiktionary.org/wiki/red_face_test

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_5_Value_Creation_and_executive_pay.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_5_Value_Creation_and_executive_pay.pdf

https://en.wiktionary.org/wiki/discernible

28



Q10: Achievement The ultimate goal of remuneration is to ensure that remuneration (value to employees) is

commensurate with value attributable to all stakeholders in a manner which does not take undue risks

and is sustainable over the long term (10 year or longer horizon). The topic of paying for sustainable

performance was the subject of a more recent Forum publication (Position Paper 7 – Paying for

sustainable performance).

Does the remuneration policy and implementation of policy achieve the stated objectives?

The remuneration committee will have gained many inputs from many different and varied sources. It

is beholden on the remuneration committee to reflect on the following circle of events and ask the

following questions in preparation for a new and up-coming remuneration cycle.

Step 1: Goals

What goals did the organisation set for itself within its strategic planning cycle?

What metrics and targets were chosen for the various remuneration plans?

Is there alignment and synergy between strategic objectives and incentive metrics?

Can the metrics be manipulated to benefit management at the expense of other stakeholders?

Are the targets sufficiently stretching?

Step 2: Outcomes

Are the performance outcomes within expected / anticipated ranges?

Are the remuneration outcomes aligned with performance outcomes?

1.

Goals

2. Outcomes

3.

Market

4.

Gaps

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_7_Paying_for_sustainable_performance.pdf

https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/57F28684-0FFA-4C46-9AD9-EBE3A3DFB101/Paper_7_Paying_for_sustainable_performance.pdf

29



Step 3: Market

Have we canvassed the views of external stakeholders regarding our performance?

Have we analysed our performance relative to that of competitors?

Have we analysed our performance relative to the prevailing economic conditions in the region

and sector within which we operate?

Step 4: Gaps

Have we identified any gaps in our own performance reward alignment assessment?

Have we identified any gaps in the market performance reward alignment assessment?

Do we have plans in place to correct any gaps found?

Conclusion Remuneration committee’s face a daunting task of finding a middle ground which satisfies the often

conflicting requirements of different stakeholders of a particular organisation and the environment

within which it operates. There are certain legal and governance requirements which provide absolute

clarity but the vast majority of decisions which a remuneration committee has to make are interpretive

and require judgement.

This paper has been developed with the intention of providing the remuneration committee with a

framework of questions which are intended to provide guidance in making informed decisions and

ensuring appropriate debate on relevant matters which will enable the best possible outcome for all

concerned stakeholders.

30



Annexure À – Summary of the 10 Questions

Section Questions

1. Structure Do we understand all the reward structures in operation, how they operate and how they interact with each other?


How do these structures broadly operate, how were they determined and what is the range of likely outcomes?


2. Alignment Do we have a clear understanding of the organisation’s strategic objectives and value drivers, and how remuneration is aligned?



3. Risk management Do we have the correct set of tools in order to mitigate risk in the remuneration system?

Malus provisions

Clawback provisions

Minimum shareholding requirements (MSR)

Post vesting holding periods

Maximum/ceiling payouts


4. Fair and responsible Are we regularly assessing the fairness of pay, how responsible are our policies and practices and how do our pay practices impact on the dignity of our employees?

Stakeholder alignment

Benchmarking

Pay ratios

Pay gaps

Gini coefficient

Living wage

5. Innovation Do we understand the needs of all stakeholders and innovate policy and practice changes as circumstances demand?

6. Variety Has the remuneration committee actively sought inputs from a variety of sources before making final decisions?

7. Evaluation Has the remuneration committee been thorough in its interrogation of performance outcomes?

8. Disclosure Have we appropriately considered what is and what is not disclosed in terms of remuneration?

9. Appropriateness Are the remuneration outcomes appropriate and have we exercised appropriate discretion where necessary?

10. Achievement Does the remuneration policy and implementation of policy achieve the stated objectives?

31



Annexure B: Resources

List of papers / references referred to in the paper

Remuneration Committee Forum Papers:

Position Paper 1 – May 2013: A framework for remuneration committees - Ed 1

Position Paper 2 – December 2013: The remuneration Policy - Ed 1

Position Paper 3 – October 2014: Managing conflicts and tensions at the remuneration committee

Position Paper 4 – August 2015: Linking pay with performance

Position Paper 5 – June 2016: Value creation and executive pay

Position Paper 6 – March 2017: Fair and responsible remuneration

Position Paper 7 – July 2018: Paying for sustainable performance

Position Paper 8 – June 2019: Remuneration Committee Competence Profile

Web sources: -


https://www.bbc.com/news/business-45977390

http://www.labourtesting.labour.gov.za/DOL/documents/forms/employment-equity/form-eea4-income-

differential-statement


https://www.bbc.com/news/business-45977390



32



Notes

33



Notes

34



Notes

35



Notes

36



Individual Services

Corporate Services

Thought Leadership

- IoDSA Membership

- NED Vacancies

- Director Certifications

- Individual Director

Development Programmes

- Customised Board

Development Programmes

- Board Performance

Evaluations

- Governance Advisory

Services

- King Reports and Practice

Notes

- General Board Guidance

- Board Committee Guidance

- Research Projects

HOW CAN WE HELP YOU?

www.iodsa.co.za [email protected] +27 11 035 3000

http://www.iodsa.co.za/

mailto:[email protected]

position paper 9 › › resource › ... · 2020-02-26 · q6: variety q7: evaluation has the...

Documents